As the UK economy continues to suffer as a result of Covid-19, offering Rent Protection is more important than ever for letting agents.
As we approach the end of 2020, the UK economy continues to battle with the financial impact of the Covid-19 pandemic. Increased unemployment and regional lockdown restrictions over the winter months will also affect the Private Rental Sector (PRS).
With tenants feeling the squeeze financially, many may find it difficult to pay their rent in full each month leading to a higher level of rent arrears. This will have a knock-on effect for landlords and letting agents, meaning you will need systems in place to mitigate reduced rental income.
Stricter lockdown restrictions introduced
Earlier this month, the Government introduced its new three-tier system of Covid-19 restrictions. While the majority of the country remains in the lowest ‘medium’ tier, a number of regions in the North of England and the Midlands have been placed in the ‘high’ tier.
Areas in the ‘high’ tier are banned from mixing households indoors, while the ‘very high’ restrictions have forced pubs and bars not serving meals to close. There is also guidance against travelling in and out of areas with the highest level of restrictions.
Those in the ‘medium’ tier are still obliged to follow the ‘rule of six’, while pubs and restaurants must close at 10pm. The impact of tighter Covid-19 rules – intended to curb a second wave of the virus over winter – will be widespread.
The hospitality industry will come under further pressure and consumer confidence will dip as regions all over the country will be concerned about tighter restrictions coming into play in the future. These measures will have implications for people’s jobs, which could ultimately affect many tenants’ ability to pay rent.
Unemployment set to rise as furlough scheme ends
Alongside tighter restrictions, the Government’s furlough scheme comes to end later this month. Many have predicted this could lead to a wave of redundancies, something which will again put pressure on people’s finances. Figures published by the BBC show that the number of redundancies recently reached 227,000, a level not seen since the last economic downturn in 2009.
That said, the Chancellor, Rishi Sunak, has introduced a new Job Support Scheme to help protect jobs in industries facing lower demand over the winter months. This comes alongside an extension of the furlough scheme for businesses which can’t open due to local lockdown measures, which will cover two-thirds of furloughed employees’ salaries.
The impact of Covid-19 on the jobs market has already been felt, with the latest figures from the Office for National Statistics confirming the unemployment rate at 4.5% between June and August. This equates to around 1.5 million people being unemployed during that period and marks a rise of 0.4% on the previous three months. What’s more, between March and September the number of people claiming benefits increased by 120% to 2.7 million.
ONS figures show that 156,000 fewer 16-24-year-olds are employed compared to the summer months with people in this age bracket more likely to be working in the worst-affected sectors such as hospitality, leisure and tourism.
Although the PRS is made up of a more diverse ranges of ages than ever before, the younger age brackets still make up a high proportion of renters so there is likely to be a knock-on effect in rent arrears figures in the coming months.
Forecasts from the Office for Budget Responsibility (OBR) suggest unemployment could peak at 9.7% this year, before returning to normal levels in 2022.
However, the OBR’s worst-case scenario suggests around four million people being out of work in 2021, with unemployment remaining above pre-crisis levels in 2024.
UK economy in recession
Meanwhile, in August it emerged that the UK economy had entered a recession for the first time in 11 years after shrinking by 20.4% in Q2 2020 compared with the first three months of the year.
Since then, there have been more positive signs with the economy growing slightly as restrictions were eased over the summer and initiatives like ‘Eat Out to Help Out’ proved to be a success.
The outlook for the next few months, however, is less promising as the three-tier system comes into play and people’s spending options are more limited.
The impact of the evictions ban
Alongside stark economic conditions, the lettings sector is also having to contend with ongoing legislation changes and increased regulation.
On top of this, there have been measures directly linked to Covid-19 such as the ban on evictions which have impacted landlords and agents’ finances. Although the ban on evictions has now been lifted, there are new rules with the notice period extended to six months and a Christmas truce – during which time bailiffs will be unable to evict tenants – which will last from December 11 to January 11 2021. It has also been announced that The High Court Enforcement Officers Association have agreed to a request from the Government not to enforce court possession orders in areas with the highest Coronavirus restrictions. So although evictions can still proceed through the courts, bailiffs will not enforce court orders in Tier 2 and 3 areas – at the time of writing, this includes London, Greater Manchester, Merseyside, Nottingham, much of the north east of England, and many more.
During the evictions ban, landlords facing the worst cases of rent arrears built up before the pandemic were unable to take action, potentially costing them thousands of pounds in unpaid rent.
Since the ban has been lifted, new measures mean that the notice period for the most serious cases of rent arrears has been reduced to four weeks and it has been confirmed that these cases will be prioritised by the courts.
The Government has said that the ban on evictions is under ‘constant review’, so there is a chance it could be reintroduced as lockdown restrictions across the country become more severe over winter.
Why is Rent Protection so crucial for agents in 2020?
The combination of the above factors will have an effect on the PRS and tenants’ ongoing ability to pay rent in full each month. Therefore, it’s important that letting agents do everything they can to protect their landlords’ income and subsequently ensure they still receive their management fees.
Unfortunately, for many tenants the realities of redundancies and working in industries severely impacted by Covid-19 means they won’t be able to afford their rent.
Increased rent arrears translate into more work for agents, who are tasked with chasing outstanding rent and continually communicating with renters. This increased workload comes at a time when agents’ management fees are reduced due to a lack of tenant income so it’s a lose-lose situation.
That’s why offering Rent Protection to landlords is more crucial than ever if you want to help them to protect their investment and ensure your management fees are still coming in each month.
Here at HomeLet, we have worked with underwriters to make sure that we provide agents and landlords with comprehensive cover to protect rental income.
Our rent protection proposition ensures you receive the monthly rent payable for up to six months if a tenant defaults. It also includes up to £50,000 to cover legal expenses and has no Covid-19 restrictions.
Offering a quality Rent Protection product can also help agents to improve client retention rates. By building Rent Protection into your management package, you provide landlords with another reason to continue with your services; by offering them a level of service they may not get through another agency. During times like these, landlords will be looking for letting agencies that provide them with a comprehensive package of management services designed to protect their investment and maximise their income.
Safeguard your income with reliable protection
Now is the time to protect your landlords against defaults on rental payments and breaches on tenancy agreements